good morning.

boeing's flight plan, the aerospace giant heads to washington today to pitch the faa on a plan for fixing the dreamliner's battery problem. tech toughness, shares of hewlett packard getting a boost on a better than expected quart ily report and upbeat guidance. plus, a key election in italy. not the pope yet. that's coming, though. the outcome is anything but certain and the global markets are paying close attention. it's friday, february 22nd, 2013 and "squawk box" begins right now. good morning, everybody. happy friday. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. keeping an eye on the u.s. equity foourchs, well, after a couple of days of declines, dow futures are up significantly this morning. that's a gain of 50 points above fair value. the s&p 500 is opening up by

about 6 points and this comes after two days of declines and a lot of questions about whether this rally has tapped out, at least for the moment. among the key market drivers this week, the fed and the conversation continues today. boston fed president eric rosengren and fed governor jerome powell will be speaking at a forum in new york. you don't have to wait until then to get inside scoop on the central bank. james bullard will be our special ges guest, with us starting at 7:00 a.m. eastern time, and this is huge given all the news from the fed this week and all the questions the market has been asking. the two-days of declines we've seen in the markets has pretty much all been blamed on the markets that we got a couple of days ago. we will talk to jim about everything that was happening inside the room and try to get his take to where we're headed here. let's get you up to speed on the morning's headlines and before that, i'll tell you about hue yet pack yard, coming in and topping estimates.

ceo meg whitman says that the company's turn around plan is gaining traction, though there is work to do. we'll be talking more about hp in just a few minutes with a fundamental manager who focuses on technology. in our tech news, texas instruments is raiding its quarterly dividends by a third. shares of pi have risen about 10% since the beginning of last year, but they are still 70% lower than the 2000 high. shares of gardener denver rising on reports that kkr is bidding $75 a share for the industrial pump manufacturer. yesterday was the deadline for offers for the company. the hot and cold sales process has been going on since last summer. i'm guessing you know a little bit about that, too. >> a little bit. solaris of aig getting a boost after the company's operating results beat specations. among the drivers, stronger operator earnings in its life

insurance business and better underwriting margins in its property and casualty business. and a little bit of higher investment income. ceo ben lachey on the cnbc yesterday. >> the results are terrific and we had a couple of headlines problems which caused the quarter, but still, with the huge loss of sandy of $2 billion pretax, we made a profit in the quarter. fm global boss jon corzine has avoided a lifetime ban from the futures industry, for now, at least. the national futures association says that corzine will be blocked from the industry unless he clears an investigation into his fitness as a participant. and also, boeing will meet with the faa today. executives from the airplanemaker will be laying out a plan to get the dream liner back in the air. the company's specific proposals will prevent the lithium ion

batteries from overheating. the wall street journal has a story that includes an interview with the boeing ceo jim mcnerney. he believes he needs to get into the mechanics with the people doing the scientific work so when he finally announced the company has found a solution, he knows it is right. also worth noting, mcnerney says he got general motors and ge who land boeing's top electrical experts of the battery problem saying, you know, we have to have the improvementer, we want to have the best minds involved in this so that when we get a solution or think we have a solution we can say, as definitively as possible, this is the best folks in the country and the world doing this. >> really smart. that is something that harvard business school and other business schools will be studying for years to come. >> he was talking about making

phone call toes ge and others saying, i need you to lend me your best people. do they just lend their best people? >> yes, because they have an interest in it, as well. their engines are going into these things. >> how does that work? are they taking people off projects at their own companies? >> i think they'll probably high level and yes, you just do it. >> i don't know. >> for ge? rolls-royce makes engines, too. >> enough battery guys laying around? >> no. and i think he knows a few people at ge. >> just a couple. >> and we make a lot of -- i said we. we make engines. >> tearing up. no, it's okay. is it signed, sealed and delivered? are we out? >> we're done. >> i wished him happy birthday the other day because it was your birthday.

no response. not -- you would have gotten 100% response before. then for a while he was getting 49% response. jeff and i have the same birthday sthp. >> and my dog, zarah, a german shepherd. >> are you comparing both of us to dogs? >> no, not really. and i wouldn't say ge has been a dog as a stock. anyway, i wouldn't say it out loud, jeff, thanks for not answering my -- >> getting bold, aren't you? >> yeah. aren't i great? let's check on the markets this morning. i thought santelli was pretty dedescriptive yesterday when he said, it doesn't matter. you can talk about it all you want. but when you see the reaction to the averages when those minutes came out and so far it's not even -- is it 100 points? barely. it is nothing so far. >> but it is when we look at where we haven't seen those

moves. >> i think of a heroine addict for years and years, you're getting the fix. and then you're going to have a hard time initially when you stop. >> but then you get methadone. >> right. or your life is going to get much better. >> why do you know so much about this? >> because you know how it works. but initially, it's going to be rocky and then your life gets better. >> you watch the market players. you have to think, when the fed decides to pull back, at least initially, they're not going to like the feeling of having the punch bowl taken away. >> and in comparison to what receive seen this year because we have not seen triple digit drobs.

>> there were some really thinking things we talked about. number one, is it because the economy is better or are they worried about creating an effect. the other thing is, were they trying to make credit so available that they risk ed -- remember they said that yesterday. they were trying to move it out the curve. >> and they were trying to -- >> but then people like santelli would say it they didn't realize what the possible outcome could be. >> ahead of this appearance, i would like to think about the downplays a minute. >> right. and in this latest fed, which is very transparent, a lot of times they've made some moves like this that are talked about and conjectured and all of a sudden they're available to come on. >> i bet he's one of the guys in the room who was making a big stink about where things are headed. >> the other thing that i wonder, given that everybody knows -- >> i think he's been concerned

for a while. >> but given that there are minutes and everyone knows there are minutes being taken, i think if you are a hawk in all this, you show up in the meeting and you are as loud and as prod as humanly possible to get your point across, not just in the room, but in the public. >> although i can they do take a very congenial way of going about it. i don't think anybody is screaming in the room. i think they work together. >> when fisher is here, he says that. >> but i'm suggesting, knowing that there are minutes, knowing there's a microphone in the room -- i'm not suggesting that. i'm saying if they have a point to make, they make it and make it off and a month later it kms

clear. but we're at 1 is% now. so it's not even clear that this is any type of correction at this point. we're up right now, but that can change between now and when the market opens. oil continues to trade in the right direction base odd what we saw this week. it went down initially on the notion that the punch bowl is getting taken away. we can do punch bowl, heroine, we can do training wheels on the economy. you like punch bowl? >> i like punch bowl. >> and if it's just punch, then people are going to leave the party. >> there is nothing extra. >> yeah. because this gives us an idea of what is happening. now, if they become less accommodative and the economy is still slow, there's no reason for it to go up, anyway.

let's look at the dollar which initially you would think it would gain. >> the dollar index was at a six-month high yesterday. >> and gold is i like to think double crossed. we'll see whether we get to that point. it is under 1600. >> you know what the level is? i had it the other day and i have to find it again. >> we showed the double cross screen. >> don't you think we should get the prices right on -- >> we'll work on that. >> we should get the prices right before we start working -- >> somebody internally set this the other day. i'll find and it call it back up. time for the global markets report. resplendid in blue i saw. my ice were drawn to the screen it's such a beautiful blue kelly evans is wearing. and the dew is good. >> all week i like it. >> this is natural. i'm curly naturally so we're going with it.

as the hairstylist told me, we can't fight this one any more. >> she's tired. >> hello, guys. you were just having this discussion about the fed. remember, it's not just the fed that's been driving market activity during the sell-off for the last couple of days. it's also been europe. yesterday, weak flash pmi figures out of europe. today we get these projections from the european commission that suggests europe this year will be in a second year of recession. no growth until 2014. you may be wondering why all the green behind me. keep in mind we were seeing a rebound taking place after those trading sessions. we saw germany coming out with its ifo business sentiment index. keeping in mind what we saw this week and some of the pmi figures, germany is still leading brightening after its quarter. not necessarily the same case elsewhere. it doesn't matter. markets are shrugging it off. . i know michelle caruso cabrera is on the ground there to cover the very latest as that happens.

take a look at the bond space, too, where it's a market friendly outcome. it seems to be priced in. italian debt is rallying, 4.45% is the level there. pretty much the only real risk at this point is if monte and berlusconi don't form a coalition. unlikely at this point. a quick final look at forex, the euro has been keying off this trading session in the u.s. for the last couple of days. today, it's now down by 0.1%. this is interesting because after the ifo survey, it was up 0.4%. it's been slowing giving up ground all morning. as i hand it back over to you guys, the question on this friday is going to be whether the initial rebound we saw taking place in u.s. futures can be sustained. and i think james bullard's comments will have something to do with that. over to you. >> kelly, one thing we're going to be watching today and it's always darkest before the dawn.

was anyone expecting hewlett packard to have a positive outlook. >> hold on. can we put this into context? are you going to be negative? >> i'm going to be negative. >> a request quarter on a relative basis to what? because the market expected it to be awful we've decided it's a good quarter? >> that's what moves stocks. >> think about the last couple of years. >> it's not that i didn't want to give her credit -- it's up 90 cents. >> it's up 5%. >> i know. >> there are people word background the future and openly conjecturing about the future at hue yet, whether everything stays together, whether it's broken up. so i see what you're saying but, you know, this was better than expected, right? >> jack welsh does say he gets irritated we always go on expectations versus prior years and everything. >> based on prior years, the revenue res down. it's all down.

it's all down. >> but we already knew this part of the story. >> it's kind of a sad story because it's a great -- >> i'm not disagreeing with you. >> it was such a great american iconic company and the founders and everything else. and then you think of all the stuff, it's a soap opera. it's been a total soap opera. what is it, free texting? is and herds with the soft core porn act. >> it's not just the act. >> did you forget about her, what was her name, goldy fisher? no. that's another actor. >> let's talk to dan morgan, senior vice president and portfolio management at sinovo trust. do you have hewlett packard? >> yeah, we hold it, joe, in our value accounts. dividend yields, so it attracts

kind of like a hewlett packard on a value basis, on a kap cash flow basis. what we call the equity income model, we hold hewlett packard in those accounts for clients looking for dividend income, not necessarily for super growth, but looking for an alternative to bonds. >> do you see positive things here about it or are you just holding it for the income or do you think that, you know, the capital appreciation is something we'll see again in hewlett packard? >> i don't know, joe. it's a tough stock. i heard you talk about porn in hewlett packard when i got on. >> that was mark herd. but he's a big star at oracle now, isn't he? >> yeah, i happen. he's doing well with larry elison. i guess they're taking the boat out. >> yeah. let's not get into that, what goes on a boat, even though fog fers can't -- yeah. we've even had people say that they tried to dissuade meg

whitman from actually taking the job because it's going to be too hard. so you're not a guy who is going to come here and say this is a game changer and that the tide has turned for hue let at this point, dan? no. >> no. i think we have a long ways to go. i'm as frustrated with it as you are. it has a place in time, but it's not going to be amazon or google or something like that that can really provide super returns. i mean, you know, you guys were talking about break-up values. when you look at -- how do you even do that? you look at their business and the operating margins that they just did on this most recent quarter and you try to say, let's take the top margin businesses and get rid of the pcs and areas that don't do much in terms of margins. but then what do you really have left? 733% of the company's hardware, services and software, services really didn't have high margin on the last quarter. services is under, you know -- it's a very small portion of our total revenue. i don't know how you do that. >> is it a transition to a style

model? >> right, exactly what we're talking about. how do we get to services and software? how do we get to buying our shares back and playing the ibm game? i don't see how they can do it. software is a small portion of revenue. so, you know, meg whitman has a tough, tough challenge with hp. and they've been through so much and you just kind of hope that maybe over a period of time they can kind of grind this thing back out and get back to maybe what mark herd was doing before he got in trouble. >> does it make sense to put hp in the category of dell and even raise the question of whether it's a company that should be going private and whether there is a turn around that can somehow be done better and private to the extend you believe that is even plausible? >> you know, it's tough. i mean, dell is very similar to hp in terms of the troubles that they had. so, you know, will hp do better private and then come back out later as parts or pieces? it's very, very difficult. where does that leave

shareholders? is it leaving shareholders of dell? are they really benefitting from this? the stock has come way down and they'll eventually get bought out at some lower price. i don't really know how it helps. like i said, right now it's a dividend stock for us right now. >> you saw the revenue number. it's a company that is still sold $28 billion worth of something. >> it is still a toll booth of some sort. >> yielding 3%. >> 28 million -- >> i can't sniff at that. >> all right, dan morgan, thank you. meg whitman reappearing on "squawk on the street" at 9:00 a.m. eastern time. faber has something to do with that. >> he does. he was on the west coast yesterday. >> to do this? >> i believe this and perhaps other things. coming up, italians set to head to the polls this weekend. if you think it doesn't matter to you, think again about this. michelle caruso cabrera will be joining us from rome.

wheat find out why this election matters to the global markets. michelle. >> hey there, andrew. yes, two of the leading candidates are convicted criminals. only in italy. it makes the u.s. congress look like a bunch of boy scouts and girl scouts. why it matters to investors, coming up right after the break. [ male announcer ] you are a business pro. executor of efficiency. you can spot an amateur from a mile away... while going shoeless and metal-free in seconds.

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back now with your traveler's check. the number one business travel must-have inspect free wie fee. two-thirds of those surveyed would like to see free wi-fi become standard this year. welcome back, everybody. take a look. the u.s. equity futures are indicated higher after a couple of days of declines and a lot of concern based on what we heard from the fed. you can see right now, though, the dow futures on this last

trading day of the week are up by about 55 points above fair value. s&p futures up by just over seven. in our headlines today, the countdown to another fiscal cliff. automatic spending cuts kick in at the end of last week. the number of corporate leaders and investors have raised worries. but family druckenmiller is worried this is obscuring the real issue which is the entitlement. his thoughts on closing bell yesterday. >> the hype oversee quest ragz is a joke. sequestration is 85 billion. it can net out sandy. you're talking about a quarter of 1% of gdp. if we don't deal with it in the next four to five years, the same thing is going to happen. we're going to wake up, interest rates are going to explode and the next generation, they're going to have a very, very tough time and it's so unfair. >> he wrote a piece about that a year ago, but this was very interesting to hear him talking live with maria yesterday. we're going to talk more about

the economy, the rates and the sequester coming up in the next half hour. we have fed president james bullard here to talk about all of this. >> what he's saying is all the dasta dastardly comments that could happen about the minuscule amount of money, it's a joke, right? >> and that's why he said you're going op-ed. i think it was around the first debt ceiling. >> i'm gratified that you're still drinking diet coke. because that guy the other day, like you're supposed to drink some kale spinach disgusting -- what is going to happen to you? >> what happened to you after you drank it the other day? >> you you ran. i saw you ranning that way. >> no win did not. but i did feel -- >> you were walking quickly. >> that's what it's supposed to do, though. >> we have to get to rome. michelle ka rue sa ka brreduc c

cabrera with the best assignment in town. >> two of the leading candidates have criminal convictions. only in italy. why do investors care the the outcome of this weekend's election? the third most indebted country in the world after the u.s. and japan and if the outcome of of this election leads to what could become a hung parliament, maybe they can't get anything done, maybe they can't keep up with their reforms and maybe they don't generate the tax revenue that they need. let's show you the choices of candidates, in the lead with roughly 34% according to the polls, it's luigi bersani. if you're in the union, he is your candidate. second place, the amazing sylvia berlusconi with roughly 30% of the vote. former prime minister, despite numerous convictions, despite the allegations of the sex with

an underaged prostitute who has a stage name when he's a more rocco belly dancer ruby the heart stealer, he is stell number two in the polls. he's about as right wing as you can get, the most free market you can get. he hasn't achieved a lot of the policies that he's wanted to in the past. but still, if those are the kind of policies you want, he's the one advocating them the most. he is a very, very adept politician. that is just the opposite of mario monti who is the current prime minister. he's in fourth place. the electorate gives him absolutely no credit for stabilizing the interest rates of italy, bringing them down from 7% to below 5% after doing some reforms that the italians hate,ite? lots of austerity and the business community thinks maybe he raised taxes enough and didn't cut spending enough.

then perhaps one of the most amazing stories is the fact that i mentioned there are two candidates with criminal convictions. the guy who started out in fourth place, now in third place, it looks like he could be in second place by time we see the results on monday. beppe grillo. he's a comedian. he travels the country in a camper. he has a man slaughter conviction from 1908. he does obscenity laced rallies jumping on the politicians. he gets 90,000 people to show up at a rally. it's become an incredible field of candidates and it's quite possible that come monday we don't really have a government that is formed because somebody has to get 42% of the vote. it doesn't look like anybody is going to do that. it could be messy. we'll be back on monday to show you what else koum comes up. >> how long will you be there? >> i'm going to be here till wednesday. >> where are you staying?

>> at a very nice hotel. >> yeah. you can't really -- i mean, it will be -- >> it's not expensive, it's very, very manageable. >> do you need me to -- do you need a recommendation? >> are you going to go down morro? >> do you want me to? >> i do. >> on the trevi, okay. >> one of your five gates that i know you probably set up already because it's romantic, it's good down there. >> alberto, there's valentino. >> you are right next to the forum, which is the coolest place in rome. it's probably right to your -- is it to your let me tell? >> it is. the coliseum is amazing, too. >> but i like the forum. >> yeah. that's the coliseum and then the forum. >> excellent. thanks, michelle. we're going to -- you know, you're going to go back for the pope probably when that's happening. watching for the smoke.

>> yeah, sure, i'll come back. i'll come back to rome anytime they want me to, joe. >> you're the best. thanks, michelle. come up, a hack-a-thon at the white house. what else is new? the details next. plus, why one country is suddenly facing a shortage of pepsi. but first, as we head to break, a look at yesterday's winners and losers. great, everybody made it. we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard.

hey do you wanna get a drink later? [ male announcer ] hold packages at any fedex office location.

good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. making headlines this morning, president obama is holding a white house open day-to-day hack-a-thon. >> oh. >> it's about hacking. >> duh. >> i thought it was about filling the entire places with hacks. >> i knew that's where you were going. >> that's what i thaw it was, a swear. >> come on, mr. brand new iphone. >> yeah. the administration is inviting developers and tech experts to come and share ideas. i thought it was just axelrod and a couple of the -- you know, i'm sorry. i apologize for that. hack-a-thon res common in the tech industry, complete with beer, pizza, sleeping bags,

they're basically athletic events for technical geeks. i can't get beyond what i think a hack-a-thon is. it's such a perfect name. i was just thinking, we just talked about geeks today. did you see google today? >> i did. >> do you know who this guy is? i would feel inadequate. do you know add ward gorey? he was born in 1925 and it's about doodling. but they need to -- those guys at google every day need to prove their ultimate geekiness to us. >> or you can use it as an opportunity to learn something which i actually like. >> yeah. but it was his birthday. he's lm already dead. bad things happened in a lot of his doodles. did you see it? >> i just saw it right now. >> you hadn't searched anything

yet this morning? i had, but when you do it on your iphone, it doesn't show up, the new thing. >> you have a computer right there. i do have a computer right there. now that i've seen what it is, i didn't know edward. >> you were closer to knowing than i remember, i think. >> i think. >> since we're doing birthdays, it's my mother-in-law's birthday. bobbi, happy birthday. >> bobbi? >> barbara. >> okay. >> we have other news to report. pepsi is suddenly scarce in thailand avenue the bottling deal in the country expired. this is basically knocked pepsi now off store shelves. the new soda is called ersts. it has garnered 19% of the cola

market since it launched in november. that's a crazy story. >> it is. >> there's some kind of trends in dental? >> i do not know. >> we've been tracking currencies. the euro is losing ground while the dollar strengthened on yes's of move. this morning, the dollar is up against the euro. 11.318. but the market may have misread the fed and put money into motion for no reason. joining us now is steve englander. steve, you think the market overplayed what the fomc was saying? >> if you're in the fomc ask a nonvoter, you don't want to be part of a couple of participants or a few participants.

so i think that the -- you know, it was kind of a conscious effort to have the voices heard more from the hawks at the fomc. >> okay. so this is something that you think we'll maybe figure out over the next week or two? next week bernanke is testifying. do you think it will become clear at that point? >> i think so. i don't think hooes they'll be able to indicate there's a readiness to pull back. if you look at the comments that have come out from the dove jish wing of the fomc, they're much more cautious about the labor markets that's being played. at most it's going to be, we have to see how things play out and we're not getting the labor market that we've been looking for. >> where do you expect that to

head? >> i don't think the dollar and the euro are excite to go play on. they're both challenged economies. the euro has been doing better over the last six months because of the improvement in risk, the sovereign debt issue. the european economy, as we saw this morning, could weigh on this. i think we're basically in a euro/dollar trading range of 1.35 to 1.25. >> if that is not exciting to you, what is more exciting? >> look, i think the yen story is very exciting. the sterling story is very exciting. both policymakers in both countries trying exclusively to weaken the currencies. and you have to think two things that i don't think is well recognized in the market is that currency weakness doesn't buy you a lot of exports. you do it because it's the only game in town, it's the only tool you have left, not because it's a particularly effective tool. and when you start using it, you have to be ready for the currencies to move a long way.

both of these countries are playing catchup. >> it's not just that, it's the bank of japan, too. i think the question becomes which central bank takes its foot off the pedal the soonest? >> well, i think any central bank indicates that it's not even in an easing buy. we saw a little bit overnight with australia. you know, you see the currency tend to appreciate. i think policymakers and central bankers have come to realize that talk is cheap. so if you feel your currency is a little overvalued, all you have to say is it's overvauld and it drops 35% or two overnight. the question is, who follows up aggressively in terms of trying to push the value of the currency down? and i think the truth is that the g-4 countries want to weaken their currencies, they can because they're less exposed to commodity price inflation. they don't mind if housing prices and asset markets appreciate. it's a -- em countries face a

lot more constraints. >> what currencies would you buy right now? >> i think markets have sold off emerging as a group. i think asian growth is underappreciated, the rebound that we're going to see in asia and will is a little too much fear about yen weakness. if y if you take a look at japan's trade shares, it's plummeted to 4% now. they're not really a threat to the rest of asia. so i think as we see the numbers come in, we'll see asia appreciate. and i think even currencies like australia and some of the smaller currencies, they have room to bounce back from their recent weakness the. >> steve, thank you very much for joining us this morning. hope you have a great weekend. >> my pleasure. thank you. coming up next, quarterly results from abercrombie and

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welcome back to squawk. the markets setting themselves up nicely. nasdaq would open about 14 points higher and the s&p 500500

up close to 8 points. also in the news this morning, abercrombie and fitch releasing results. revenues were roughly in line. among other headlines, it's now raising its deaf dent, changing its accounting method and expects to close approximately 40 to 50 stores in the u.s. this year. whether we come back, a segment fit for a friday. we're going to head over to the chairs and squawk on some of the morning's more offbeat stories. then at the top of the hour, we have the newsmaker of the morning. st. louis fed president jim bullard will be joining us as our guest host. boy, do we have a lot to talk about. stick around. have pictures of my kids. they don't have my yoga mat. and still, i feel at home. could it be the flat screen tv? the not so mini fridge? ♪ the different free dinner almost every weeknight? or maybe, it's all of the above. and all the rest. am i home? nope. but it almost feels that way. homewood suites by hilton.

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we are in the chairs and i just -- we're going to talk about jack lew a little bit. we haven't, really, that much. and i know there's an expression what's good for the goose, good for the gander and things like that. but anything bother you or -- it systems so like there may be two sets of standards, depending on which side of the aisle you're on. >> that's often the case in washington. >> yeah. but this is good. if it was a republican, some of the democrats or the liberals might have a problem with a check. recipient of a bonus and

corporate jet rides underwritten by taxpayers, check. executive at a university that accepted student loan kickbacks for steering kids toward the -- check. excessive compensation with minimal disclosure, check. now i didn't know that much about this guy. but he does come across, i thought he was really holier than thou. i mean i really thought he was impeccable -- i mean. >> he was at citi for awhile. >> he was at sit ty for like two years or something. we're not talking about a lot of time. >> some of these things were when he was at the university and the questions are about what they paid him and it hasn't been -- >> there are different standards applied -- >> again you are shocked that in washington people take sides that they're on? >> it doesn't seem to bother anyone in the media, though, except for "the wall street journal." i don't see "the washington post" carping. i don't see your paper carping. >> i've read a lot of it. >> not "the new york times." >> "the washington post" has done some -- >> they have a great -- what's her name? she's great down there, rubin?

i mean she's -- she stands out. >> but he's -- look, he's -- he was a career technocrat for the most part. >> i know. >> and with the exception -- >> these are your selling points for why he'd be a great -- >> look i'm not going to make you that argument. i'm going to make you the argument that the stuff at happened at citigroup is like a rare intermission in his life for like a year or two. >> but a lot of this stuff comes from the university questions that they are asking about the compensation there and where the things came from. >> it shouldn't matter in terms of judging his performance as treasury secretary. >> by the way, i would have not necessarily raised questions about the cayman islands stuff. >> oh, you were all -- every detail of that fat cat get -- >> you know like warner wolfe would say go to the videotape. you will not find tape on me. >> he once said that and his teeth came out and he had to actually put them on on air. have you seen that? it was a -- >> that would be worth looking up when i get home. >> i love you --

>> i do --. but it did happen once. >> anyway, another story that i don't know if this will upset you or not a story floyd norris wrote about a tax that may change the trading day. >> is it a tax? >> it's a tax. >> all right it upsets me then. >> i know. a tax on a transaction tax that finally seems to be coming to europe but increasingly is becoming more in conversation in the u.s. and what that means. >> any transaction? any purchase? >> no, no, this is a trading tax. >> a trading tax. >> if you're going to trade there's going to be a tax. and it's trying to eliminate or at least will slow down electronic trading. >> that's interesting. i mean are they doing it to raise money or doing it as a penalty to try to keep people from doing -- >> they're doing it to raise money which i think is the initial instinct. but the effect it will have -- >> is he saying -- >> he's saying it's a good idea. the question i have is whether you would want to make it truly progressive meaning they're going to have it as a tax no matter if you own the stock for

a year or if you own the stock for a day. the question in my mind is whether you should decide maybe if you're going to invest in coca-cola tomorrow because you 24i that earnings are going to be great in two weeks, maybe you should be taxed a lot. but if you're going to hold it for a year, taxed less. five years, taxed even less. maybe if you hold it for ten years, a debate. >> it's an interesting question. it's one they've been looking at for a long time. if you trade quickly in and out of the futures you pay much lower tax than if you actually buy and hold. >> that is true, too. >> maria had the guy on yesterday, the tire guy. >> oh. >> remember? >> we didn't talk about that. >> i know i realize we got that right as walmart earnings came out. we kind of got side tracked. >> i don't know if we're running any bound bites from him. he basically said are you crazy? you want me to buy a tire company in france? >> a u.s. ceo titan. >> titan. >> the city of titan tires who was looking potentially or was asked to look at a factory in france. >> and he said -- >> not only -- >> they talk for three hours and

then they take an hour for lunch and an hour for a break and they're highly compensated. and the french said that's the way it works here. >> that's what he said they said. he said when they approached him he knew -- >> i do sort of, loving paris and loving rome it's like, well i live in paris. i don't want -- three hours is a good -- that's a good number for me. and then i think about us. how long is our show? >> three hours. >> that's right. >> we can talk for three hours. >> do you want to work -- if you're in italy do you want to work longer than three hours if you're looking at the bay of salerno outside of naples, do you want to -- >> do you want to hear something from the ceo yesterday? >> i do. >> we have a sound bite? >> we have a sound bite from the ceo of titan. listen in to what he told maria. >> what i said was true. and they admitted it. they laughed about it. okay? and that's where this union president, this michael, i call him spiked because he's got his hair all up in a deal, and they're devout commies and say

said that's the french way. you have to do the french way. and i said, well, i'm not doing it if it's going to lose money and that's what you're going to always do. >> obviously this made him a huge target in france. there was a massive back lash. people were very angry and they pointed out some of the tire technology there, they've been the ones who have been engine engineering a lot of the new tire technology, too. so it's interesting. >> you got a story? >> it's glowing mosquitoes. we can do it another day. >> what? >> glowing mosquitoes. have you heard of the dengue fever? >> yeah. >> it's growing, more rapidly spreading than -- there's nothing that you can actually do to try and vaccinate against it the best thing is to try and control mosquitoes. so the way you do that is releasing these genetically modified mosquitoes that glow in the dark. they're wondering whether or not they should do that in the

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ladies and gentlemen, the "squawk" reserve is now in session. a special interview with a voting member on the fed's policy setting committee. st. louis federal reserve ceo james bullard joins us for the remainder of the show. the state of the economy,

europe, and how central banks are working to keep the global economy growing. what could create headwinds, and where he sees price spots in 2013. it's all right here as the second hour of "squawk box" begins right now. good morning, welcome back to "squawk box" here on cnbc. i'm andrew ross sorkin along with joe kernen and becky quick. take a look at the futures this morning. we do have some green arrows across the board. the dow looks like it would be up about 60 points. s&p 500 up close to a little over 7.5 points and the nasdaq up over 13 points. here's some of your morning headlines. japanese authorities identifying the causes of fuel leaks and other problems with the boeing 787 dreamliner. among the findings an oil leak was caused by an improper paint job that led to a switch not working properly. inadequate taping apparently led to crocks in cockpit glass. and a faulty part led to braking

problems. so now japanese officials are still investigating the more serious, of course, battery problem that forced an emergency landing in january, but does sort of change a little bit of -- >> taping problem? >> i imagine some of the tape -- >> like holding something with the tape? >> i thought maybe taping when they were painting. but i don't know. here in the states the head of boeing commercial airplanes will lead a group of boeing executives in a meeting with the faa today. boeing is going to be presenting a plan for modifying the lithium-ion battery and imposing a time frame for fixing the plane and lifting the grounding. take a look at the front page of "the wall street journal," it's a very interesting piece about jim mcnerney and what they're trying to do in bringing in ge and some other companies to look at those batteries. texas instruments is raising its quarterly dividend by a third, to 28 cents a share. the chipmaker also announcing it's going to be buying back an additional $5 billion in stock. shares of ti have been rising about 10% since the beginning of last year. they're still nearly 70% lower

than the 2000 high. and hewlett-packard posting first quarter earnings, and revenue, that topped wall street estimates. the outlook better than current consensus. ceo meg whitman says the company's turnaround plan is gaining traction and she's going to be joining "squawk on the street" later this morning with david faber. >> also hedge fund ledger dan druckenmiller said the focus on the sequester is obscuring the real issue of entitlement. >> if we don't deal with it in the next four or five years the same thing's going to happen. we're going to wake up, interest rates are going to explode, and the next generation, they're going to have a very, very tough time, it's so unfair. >> debt and entitlement costs are expected to explode to $700 billion over the next four years. and druckenmiller says if the problem is not dealt with, it will, quote swallow our kids for the next 15 to 20 years. druckenmiller suggests the fix is an easy ones, means test social security and raise the medicare eligibility age. of course, getting the public to go along with that is a little

more difficult. >> with the biannual of fed chairman ben bernanke and a handful of fed surveys next week there's no better time to speak to this morning's gegs host. jim bullard is president and ceo of the st. louis fed. i love all my children. i love all the fed guys. >> we love you, too, joe. >> there are two favorites i have. fisher and you. and it's such an honor for us to have you -- >> i'll see if i can move ahead of richard. >> i want to start out, because i have been accused of being cynical about things. and i hope it's not rubbing off on my young co-anchor sorkin who you've already heard what our line of questioning is going to be. and that is, that because there's a microphone, and you know there's a microphone, at the minutes, and you know it's going to come out, he's characterizing it as some type of reality show, where all the people on the show know it's going to be on tv so they don't act like they'd normally -- that's basically what you're saying, isn't it? >> and there's this loop.

there's a feedback -- >> you know it's going to come out. so you could be using us, knowing the microphone is there, to start -- >> no, no. >> to start saying look, eventually the punch bowl will be taken away so start thinking about it, and we all -- we see the minutes and go oh, my god, look, and weability on it and you're sort of, you know, misogynist to get the story the way that you want us to get it. >> no, i don't really think so. the chairman controls the agenda for the meeting. he always chooses the most natural things to be talking about for the committee. topics that have to be discussed. and that the committee wants to get some viewpoints out on the table. and that's where we are. >> did he choose the agenda this time around to talk about -- >> he sets the agenda. >> but i mean there was a question as to whether that was the agenda. the reason there was so much talk about this, was the agenda set up so that -- >> well there is an economic go-around at every meeting so people can inject whatever comments they wish to in that economic go-around when they're trying to, you know, give --

obviously there's policy go-around at every meeting. one thing about the committee, that you have to remember, it's a huge committee. >> wait a minute. >> if there's 19 people, if you're going to go around the table it's going to take two hours. >> 8:15. >> not kidding. >> was the perceived hawkishness that the media decided was evident there, was that de facto? was there more concern about the negative effects of the fed policies this time. >> fed policy is very easy. and it's going to stay easy for a long time, i think, here. i think that's my main message this morning. i think, you know, there was talk about how we're going to handle -- >> doesn't mean you're right. it means that's the story that we're getting. >> how we're going to handle the future. if you look at things right now, we're buying at an $85 billion a month pace. that's a very aggressive pace. i think that -- i think policy

is much needier than it was last year, because i think that the outright purchases are a more potent tool than the twist program was, and we replaced the twist program with the outright purchases. i don't think markets have completely absorbed that switch. i also think that the forward guidance is more effective than it was previously. previously, we had this date-based forward guidance. i think that that sent a pessimistic signal about the future of the u.s. economy. we're saying that we are not going to -- excuse me, not going to raise rates after 2015. people interpreted that as, well, that must mean you think the economy's going to be in the tank until 2015. so we took that off the table by going with this threshold based approach to the -- to the forward guidance. so i think the forward guidance is better. i think the asset purchases are more potent. this is a -- a monetary policy that really packs a punch. and the last time we had a monetary policy that was this

aggressive was qe-2, in my opinion, and what did you see during qe-2? you saw expected inflation rise, actual inflation rise, and you know, other effects around the world, in commodities connected to the markets. so, also i think we can talk about other things but i think the amount of global uncertainty is way down from where it was last year. we can talk about that. >> okay. >> in more detail. >> but i think that this policy is very aggressive. it's true that the committee is thinking about, well, how are we going to handle this, you know, later this year? but that's a natural thing for the committee to be talking about. >> there was a time when before the fed used language as a way to sort of orchestrate some policie policies, i said you should say we're going to do this for a really, really, really, really long time. and then you actually did do that. did you at least remove one really from the outlook? i mean, did -- did you

temporarily -- >> talk about policy. this is about waiting for the economy to recover, we're looking for improvement in labor markets. and other factors. and that's where we are. so we're not going to be saying, you know, that has to occur in the next six months, nine months, twelve months. >> right. >> two years. you know, we're not doing that economy. >> is the economy in a better place now than it was when you announced the -- when you decided to do the aggressive 85 bill? >> last summer, if i have my numbers right, unemployment actually went up to 8.3% for a month or two. now it's 7.9%. you could say that that's some improvement. job markets has, you know, payrolls have been about $200,000 less three months on average. i would consider those encouraging signs. but we've got further to go, and we're going to wait for more

evidence on the economy. i've been more optimistic about 2013 than most. but i think it's the right prediction for this year. and so we'll see if that materializes. but that data has to come in. we have to see that data. we can -- >> i know you know greg. yesterday his contention wasn't necessarily that the economy had gotten better. it was that the negative effects, the return of the pick type bonds, the loosening of underwriting standards that maybe the fed wanted to orchestrate, because the fed was too tight, that that has now come on the radar screen that maybe there's an idea that maybe there is a bubble forming in certain parts of the credit market because we're staying at zero for so long? >> well, as you know, governor jeremy stein came to st. louis a couple weeks ago and gave a speech and talked about asset bubbles, and asset markets. i thought it was a good speech. it's interesting. he's a leading, you know, global

authority on financial markets, and certainly someone to be reckoned with in that arena. so i think in that sense it is a little bit back on the radar screen. but i'll say this about it, you know, how long has the fed been talking about asset bubbles? irrational exuberance speech was 1996 so this has been a long-standing issue for the committee. of course you have others on the committee. george articulating the view that we already have gone too far and that we need to pull back. >> could you see a moment which, instead of saying the target, the goal line is 6.5% unemployment, that that changes because of a potential asset bubble? >> could i say what? >> so, right now the goal line is getting back to 6.5%, right? >> okay. but that's only for interest rates. >> right. >> our guidance is only on interest rates. >> i appreciate that. but in terms of the thought

process, if there is -- if you decided that there was an asset bubble right now, what do you do? >> well, the official line, i think, during the bernanke chairmanship has been that we're going to use macro tools to try to deal with those kinds of problems and monetary policy to deal with macro economic issues. governor stein's speech pushed back against that a little bit. not a lot. but a little bit. saying that, i think what will become a famous phrase, said that, well, it's not clear that you can design a rule that gets in to all the cracks of the financial system. you can't see the whole financial system. we can't see all these excesses that might be gathering. but you know interest rates are going to affect everybody. and so that was a little bit of a way to say that, at least for him, i don't want to overinterpret him here, but at least for him, that you know,

maybe you should think about using monetary policy in some circumstances. but this is a long-standing debate in the federal reserve system that could go on for a long time and central banks around the world. so there's really nothing new in the sense that that was brought up. >> but -- >> he's an influential figure. >> i'm interested in what andrew was asking about, too. 6.5%, is there a time where that target comes off? i mean, if we know that this is the new world that we're living in, could you foresee a world where things get a little chaotic and we suddenly say, okay, let's take a back seat? >> that's always possible. i think we just adopted the threshold. i don't think we're going to change it any time soon here. so i think the committee is serious about it, wants to stick with that threshold. >> did you, at this point, feel that the recovery in the housing market is enough to counteract the payroll tax increase, some of the other headwinds that we have? i mean, there are people that think the sequester, with oil prices, you know, putting

another tax on consumers at this point, that we actually are on the possibly on the edge of another weak spot in the economy, another point to housing being better and that should be able to overcome these head winds. where are we with that? >> we did have this zero number for fourth quarter gdp. i've taken the view that we should look through that. we should probably average through third quarter fourth quarter and first quarter growth. >> what number do you get? >> you get something that is not too different from 2%, maybe just a little under 2%. and i think that probably is the underlying growth rate of the economy. and i think 2013 looks better. so i think it will improve as we go through the year. and so i think -- >> to 2.1? >> yeah. >> actually i've got it going to 3% this year and one of the reasons is -- >> you've got it going to 3%? >> yes, i think -- i still think that's the best prediction for the year even though that didn't work out last year or the year before. but, you know, global uncertainty is down quite a bit

from where it was last year. most of that is europe but there are other factors around the world, too. i think we're still in good 145i7. on the sequester, i think that the -- there has been some anticipation of those effects already. it's not as if the sequester goes into effect and all of a sudden everybody's shocked by this. we've been talking about it for nine months here. so some of that is already been factored in. and certainly saw some of that in the fourth quarter number with defense spending way down. >> i can't help -- it's just a funny coincidence, but, we're talking $85 billion on the sequester. you guys, that's a month for you guys, right? $85 billion isn't what it used to be, is it, jim? you're -- you know. 85 that's just a month's work for you. we can do that in a year. can't we? you heard druckenmiller said

that it's crap. is it a big deal for the economy? >> i think it would only have a minor impact on growth in 2013. >> funny it's the same number, though. it's true that it's not a huge number when you think of the entire picture of the u.s. federal budget. and that if you think of the future entitlement problems we have it's not a big number compared to those things. >> so we should focus on entitlements? >> that's what you should do. i will say, as i said before, if we could get our people yum-term and long-term fiscal future on firm footing and convince financial markets globally that we can take care of our tax plans, and our spending plans and get them to line up over the next 30 years, that would be a huge plus for the u.s. economy, and would make us stand out in the world, i think, compared to other countries that have not been able to deal with their problems. and i think it's a tremendous

upside potential for the u.s. economy. >> jim's going to be with us for the rest of the hour. we have a lot more questions about what you were just talking about, about other things we've been thinking about, too. jim thank you for being here with us. >> sure. >> we're going to continue this conversation, if you have any comments or questions about what we've been talking about if you want to get a question in as well go ahead and e-mail us @squawkcnbc. much more ahead from jim bullard in just a little bit. up next, though, the ceo of titan, standing by some strong comments about the french. we'll get to that. plus, hewlett-packard reporting results after the bell that exceeded analyst expectations. we'll take a closer look at what's working now, and technology. take a look at the futures. and right now actually the dow futures are indicated even higher up about 76 points. they've been up about 50 points. jim i don't know if the market's listening to you but there are a lot of flashes on these wires and i wonder if you're actually pushing things higher, too. s&p futures up nine points above

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welcome back, everybody. again, the futures are indicated up sharply higher at this point after a couple of days of losses based on what they saw on the fomc minutes that came out. this morning, though, the dow futures up about 78 points. s&p futures up nine points. we've got jim bullard here. we're going to talk more about how you should interpret or at

least how he interprets what the fed is looking at at this point. also oil prices are up by about 34 cents. this has been a big sell-off over the last couple of days for oil prices, too. all the way back down to 39.18. and gold prices after dropping precipitously, they're not coming back even with all of this. not this one 1578.90. basically flat. the ten-year note is at 1.991%. it's been below 2% since the release of the fed minutes. >> stock to watch this morning. shares of aig getting a boost after the company's operating results beat expectations. among the drivers, stronger operating earnings in its life insurance business. federal underwriting margins in the property and casualty business and higher invest income. the ceo on closing bell yesterday. >> our loss ratios for eight quarters is slowly coming down. so the results are terrific. we had a couple of headline problems but still with a huge loss of sandy of $2 billion

pretax, we still made a profit in the quarter. >> the ceo elsewhere of tire firm titan is standing by his comments calling french workers lazy, and overpaid. speaking to cnbc yesterday, he defended his decision to write a letter to the french government refusing to buy a tire factory that was on the verge of collapse. >> they wanted to have a multiyear guaranteed employment, guaranteed everything, and i said okay, we'll do two years. and they said oh, this is a sham! and my question to them was, you mean i would spend millions and tens of millions of dollars, and you think this is some sort of a sham, to close the plant? you're all nuts. what i said was true. and they admitted it. they laughed about it, okay? and that's where this union president, this michael, i call him spike, because he's got his hair all up in a deal, and

they're devout commies and they said that's the french way. you have to do the french way. and i said, well, i'm not doing it if it's going to lose money. and that's what you're going to always do. >> that guy's got to guest host. we've got to have him in. france's interior minister responded to the letter. did he say devout commies? >> devout commies. that was the line. my takeaways were devout commies and spike. >> spelling out reasons, the de -- spelling out reasons why spans is a leading place for foreign investment union leaders also reacted angrily, and they called the letter unacceptable. >> i guess their point is you can say no but maybe you should just say no and go away. like all of the -- extra details put into that. >> you know, even when someone's joking-you have an opinion? >> i do that -- >> coming up, the friday trade,

oil, gold, the dollar, all moving this morning. we'll get you ready for the trading day. "squawk box" is coming back with more from james bullard in just a bit. the patient, presented with a hairline fracture to the mandible and contusions to the metacarpus. what do you see? um, i see a duck. be more specific. i see the aflac duck. i see the aflac duck out of work and not making any money. i see him moving in with his parents and selling bootleg dvds out of the back of a van. dude, that's your life. remember, aflac will give him cash to help cover his rent, car payments and keep everything as normal as possible. i see lunch. [ monitor beeping ] let's move on. [ male announcer ] find out what a hospital stay could really cost you at aflac.com. ♪ [ male announcer ] every car we build

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if you have any comments or questions about anything we've been talking about here this morning, go ahead and e-mail us at squawk@cnbc.com. or you can tweet us. we have much more to come from our guest host. st. louis fed president jim bullard, already a wealth of information. if you missed our first conversation, well, you can't afford to miss the next one. also coming up in the next hour, bill gross will join the conversation. still to come, tools 6 the trade. find out what could make or break this market and how you

should position your portfolio. the "squawk box" trading block is coming up. everybody made it. we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard. hey do you wanna get a drink later? [ male announcer ] hold packages at any fedex office location. ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim

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welcome back, everybody. shares of abercrombie & fitch getting a boost in premarket trading. the retailer reporting better than expected earnings and raising its dividends, as well. the european union's antitrust regulator is widening an investigation into expected unfair fixing of lending bench marks like libor. and citigroup says it has overhaled an executive pay plan that shareholders rejected last year as overly generous. that bank's going to now be tying bonus payments more closely to stock performance and profitability. joe? >> all right. thanks, becky. check on currencies, and gold with our trading bloc. joining us from new york is boris schlossberg, bk asset management managing director and from tampa, tom o'brian, editor of the gold report. i've got to start with you, tom, just because in the past you have not been -- we had the guy from the gold, i forget what he is, the gold council or

something, and i just wanted him to admit just maybe gold doesn't go up every year for infinity and i couldn't even get him really to acknowledge that. you in the past have talked about gold maybe being at, you know, having moved too far, too fast from $200 to nearly $2,000, and i just love the chart. have you looked at it recently? it's a classic of lower highs, and lower lows, and i don't know where it might go. do you? >> yes, i do, joe. and i heard that interview that you had with that guy at the gold council. the pain's not over. it's sad but true. we're at, you know, the 1560, 1570. i see it going to about 1430 right now. and this is why, okay? the dollar wants to go to 89. i mean this huge demand for dollars around the world, period. and that's where it wants to go. the selling, the last time we were on we were talking about paulson, the hedge funds, well the filings came out, no one

sold. that's a huge problem, because now they're in an even much larger losing position. okay? the key here is that gold out of the ground is 1100 to 1200 dollars all in for these companies. there's going to be some real pain coming in here. you know the gld, that in correlation of the gold market is a big deal. because every time gold goes down in the futures market they've got to sell the gld. when the gld goes down they've got to sell the gold market. if we go back to 1999, 2000, and people didn't realize and the crash with nasdaq and all that, well the qs,s diamonds, they were all brand new vehicles. when the nasdaq was going down they had to sell the qs. that's what we have happening right now in that gold market. and you know, across the world, as he was saying, india, demand is down 17%. china is flat. now check this stat out. this is amazing.

people talk about central banks buying it, right? last eight quarters, central banks have been buying. guess what? they're in a losing position. if you take the central banks trade, you're out of your mind. and gordon brown sold what, 390 metric tons of gold at $252 bucks. so bottom line is that, to me, yeah, we're still going low. >> all right. yeah. i would basically take the other side of everything gordon brown did. >> i don't know how he ever -- >> wouldn't you? >> he was like -- i don't know where -- you know. he's like a poster child for bad decisions. i know -- >> he came back, it's amazing. >> i guess he won't be, you're trying to get him on the show, right? why you would -- it's like booking jimmy carter to talk about how to fix the country right now. we don't need -- anyway. boris. >> yes? >> my man. >> by the way -- top are calling that drop in gold, called it a couple weeks ago. >> that's what i was saying.

as far as you go, currency, whatever you buy gold it's always denominated as something so you have a huge say on what gold's going to do, too. we've got jim bull ard, here, too, boris. did you see anything for the currency markets that the fed said in those minutes that changed your opinion of things. >> i didn't see anything. but the euro ran up at the beginning of the year on the assumption we're going to have a nice big turn in the eurozone, economy was really, really going to recover. i don't see any of that happening. what's fascinating about the currency market right now is you have this massive disconnect between the sentiment surveys which are copy telegraphing that conditions are improving and the actual data which is actually showing conditions are declining. so, somebody here is missignaling. and for right now i think the euro is actually driftding lower and we probably could see 130 in your eyesight because the conditions on the ground are just not that good. also, of course, we've got the italian election this weekend. and your favorite name, beppe grillo. you've got to know this guy. he's the guy who came out of

nowhere in italy and everybody's petrified of him because he's a clear unknown. we'll have to see how that plays out into the weekend and see how europe reacts to that, as well. >> tell me how -- i mean, what does that mean for the euro? what happens in italy? why does that mean matter? >> the reason why this matters is because italy is obviously a huge component of the eurozone. i think it's number three economy. if you get this whole feeling in italy that they are not behind the european union, and of all, i think of all the citizens of europe, probably the least interested in maintaining their support of the euro. you could have a major, you know, wrench in the in the wheel. and that could create massive turbulence, i think, in the markets in europe could start to drift on the whole idea that we're back to the idea of fragmentation, which was off the table completely just a month ago. >> i would say it still is. >> i still think you're right. i still think it's very much is, none of the structure problems have really been solved. and the biggest problem is we're not getting growth. the thing that cures the euro deals is growth. and they haven't seen it yet so far. european commission came out today, and is projecting second

straight year of contraction in gdp in the eurozone. >> although, jim, you said when you look around the globe, things look better than they did a year ago? >> yeah, i think europe last year, they were growing. they went into recession. that had repercussions all around the world. european economy, we add all the countries together is bigger than the u.s. economy. so it's a huge event on the global scene. they're in recession now. maybe they'll stabilize, maybe they'll improve slightly this year. but they won't go, you know, take another leg down. so my feeling is that, you know, it's kind of a negative thing. that it won't get any worse. might get somewhat better in europe. also, i think this ecb program with the monetary transactions program has been more successful than i would have predicted. i was predicting a lot of turmoil in the fall. that didn't really materialize. instead you've got countries that are undertaking some fiscal discipline, like spain and italy.

because in part because they don't really want to apply for this omt program. and, markets are -- see that the ecb might come in in a big way and intervene in these sovereign debt markets. but they haven't had to spend any money so far to do that. so, how long this can continue is a good question. but that has greatly calmed global financial markets. and now i'm thinking that this can continue through the first half of this year, maybe all the way through the german elections. so we'll see how this -- how this goes. but that has been the big story, i think, in global markets in the last nine months. eight months. >> okay. so that would just -- if we did have a big shocker in italy, and we were there back to that, that would be totally counter to what you -- >> i'm not sure the political makeup matters. because the thing is that the country does not want to apply for that program because it means accepting conditionality from the ecb.

>> right. okay. >> so i'm not sure any politician wants to do that. >> boris and tom, we'll say adieu. >> okay, guys, have a good weekend. >> auf wiedersehen. >> guess who's here with me. >> huh? >> guess who's here with me? quintanilla is here with me at 30 rock. >> wow. start sighting for you. is it like when tiger walks down a fairway? i mean there's people following carl, right? mostly girls. >> probably, yeah. i already think he's grooming for the "today" show. >> oh, from your lips -- from your lips. anyway, thank you. >> all right. >> we'll stay out of this. thanks. >> all right. >> all right, up next, jim bullard's going to sound off some more. the st. louis fed president, and is going to talk to us about global markets, and the economy. fed policy. and then are you thinking about putting a few chips in the tech space? we're going to tell you when to hold 'em and when to fold 'em. also, find "squawk box" online and on mobile, too.

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that's a shot of the arch in st. louis. it's in honor of our guest host today, jim bullard who is the president and ceo of the st. louis federal reserve bank. jim we talked a little about the sequester at the top of the hour. and people -- you made the point that the fourth quarter may have seen some expectation of the sequester kicking in with defense spending down so much. my question is, most economists are looking for somewhere between 2% to 3% growth in the first quarter but could that be -- could we get a much weaker read than that based on the idea of the sequester kicking in and even more drawdowns in defense and other areas? >> no. i think the anticipation was sort of the fiscal cliff,

remember, that was the end of the year deal. so probably that was pulled forward. some of that was pulled forward into the fourth quarter. i don't know. it's always hard to trace these things. but first quarter growth, i think, tracking estimates that i've seen are around 2.5, you know, always depends a little bit on the data that's coming in. so, you know, we need to see that, i guess. >> i know the sequester, though, is a slow -- is a slow thing. it will kick in slowly and gradually over time we'll have a bigger impact. >> yep, from a macro economic perspective, though, you know, whether it's the sequester, or some other package of spending cuts, you know, the private sector can see that something is probably going to happen. and i'm saying that there probably have anticipated some of those effects ahead of time. >> don't you think 2.5% -- >> i think it gets spread out more than people typically report. they kind of have the idea, as soon as congress passes it, that it's going to come as a complete shock to the private sector. but that isn't the way things work. >> do you think there's a

difference between spending cuts and revenue increases just in terms of how it affects the economy? >> well, sure taxes are distorting, and are always a problem, so you have to be very careful with taxes. on the spending side, if you can find programs that you don't need, or don't have high return on investment, and you get rid of those, that's a net plus for the economy. >> does it matter if it's a blunt cut across the board which the sequester will be if there's no agreement reached? >> sure it matters. because you might be cutting things that are really are valuable, and other things that aren't so valuable, are staying on the table. >> what are the chances -- >> if you were a business -- if you're a business, you're going to service, you know, all the executives that watch this know this, but you're going to sit around and strategizing on where's the most bang for the buck in my company. okay, i'm cutting that out, even though we implemented that two years ago. it's not working. we're cutting that out. that kind of thing doesn't happen as often and gets to just be -- protect all spending at all costs. and one of the things i don't

like about the way macro economists talk about spending is that they talk about government spending just in some vague terms. you can build the aircraft carrier, send it out to the middle of the ocean, sink it. and this is a good thing. >> because -- >> for the economy because of spending. and i've always thought that that was one of the worst things that goes on in the macro economic discussions. >> so many times we've heard that because of the paralysis in washington, that the fed was the only game in town, and that you've got to, you know, it's on your shoulders to help the economy, and not getting anything from congress. number one, are there things that you wish they would do, and two, you view them, do you just expect nothing because of the gridlock -- >> but we take -- you know, what the congress does and the federal budget as a input to our policy. thankfully i don't have to try to chart a course for those guys in addition to doing monetary

policy. but we take it as an input. and try to make our best bet. >> the things you like them to do? >> yeah, i'd like -- >> like what? >> a better fiscal policy that put our tax and spending program on a reasonable path over the next -- >> you'd like entitlement -- >> absolutely -- >> that would be a huge plus for the economy. you'd have this huge cloud out there of people, global investors are saying, about the u.s., oh, i'm not sure if the political system in the u.s. can cope with all the problems that they're having, and so therefore i'm not sure i should -- you know, i'm not sure i should invest there. i'm not sure it's going to be a good economy going forward even though it has been in the past. just take bowles-simpson and pass it. simple enough. >> that's very simple. >> that includes corporate tax reform. >> you take that across the board? that's your plan? >> that would be the baseline.

>> inside reflected in the minutes maybe it's not inside the room, privately among yourself about politics? >> not very much. it's a technocontractic organization. we have plenty of technical issues to talk about, political side is kind of, you know, not something that comes up as much. >> so, but then you would base your actions on whether you're optimistic or pessimistic that things do happen. are you optimistic that simpson-bowles is passed in our lifetime? and you're young. >> i'm not -- i'm not very optimistic, but, things do happen in washington. you did get 86 tax reform something i can remember, and i remember that not too far ahead of that, not too far ahead of that people were saying it's impossible. so things can happen if both sides feel like it's to their advantage to get to a deal and i'm not sure we're in that situation. but, maybe we could get there. >> but you're like a lot of corporate managers now. you're going to -- you're not --

you're going to do your job regardless of what happens there -- this is the environment -- >> it's the only way -- you can't wait for the world to be a perfect place. you have to -- you have to do your job given the environment in which you operate. >> all right. >> we will continue this conversation with jim coming back in just a few minutes. also when we come back right after this tech stocks that you could make you a little money. got some google? maybe it's time to take a bite out of apple. or are you considering looking at netflix for possible profit opportunities? we're going to talk those names and much more.

welcome back to "squawk box." hewlett-packard giving investors a reason to light tech. that led to a nice rise in the stock after hours. which tech stocks could be the next big mover? daniel ernst, principal at hudson square research joins us in our what's working segment. so what's working, dan? do you like hewlett pack art? >> well i mean, let's take a step back at what's happening in earnings. you know, for this period. you know, a lot of new tech continues to grow and old tech continues to shrink. so, apple had revenues up 18% year over year. hp last night reported earnings or revenues down 6% year over year. and they're continuing to forecast, continued slowdown in

their business. but yet, apple is down 15% to 16% and hp is up 20%. there's a lot of that disparity in the market. blackberry is up 17% year-to-date, and samsung is down 3%. so i think that the fundamentals will converge back to reality. i don't think that samsung is going to grow slower over the next five years than blackberry. they've built a great platform. i don't think that hp is going to grow faster than apple. and so i think that ultimately, markets converge on those fundamentals, and we'll see that come back. -- >> but does that mean you buy apple and you short hp? or does that just mean that apple's undervalued in your mind? >> well, actually apple's been undervalued for a very, very long time. the problem with shorting in hp is -- >> for a very long time or the last three months? >> right i mean -- exactly. people fear something like with dell right you get some sort of white knight scenario, break the

company up, just being creative, and so you know, it looks cheap, it's a shrinking ice cube so i think it's a value trap. they typically don't buy it. shorting it down at these levels i think is a lot more difficult. i think that apple will come back. apple right now -- >> when you said come back. come back to what? >> that's a good question. so the problem in my mind for apple is we had this car going 60 miles an hour, and all of a sudden it's going 11 miles an hour. at 60 miles an hour it seems great, you're whizzing by everybody else. now you're going 11 miles an hour. you feel that dramatic change. my analogy is earnings growth. last year in the year ending '21 they're going to do maybe 11, 15% this year. you feel that dramatic slowdown. but it's still growing. and it's still -- >> the stock's trading basically at $450. is this a $700 stock?

is this a $1,000 -- where are you? >> give or take the s&p trades at 15 times, 14 times earnings, apple is trading at 9 times earnings. you say is apple a below average company? are there products below average, the average company in the s&p, you know, against any peer, is there ernst growth -- >> what would be the impetus -- >> that -- >> -- change all this? >> i think that the growth rate. and so right now we're in this, you know, period where we're having this hypergrowth period and then we're also getting used to going on this 11 miles an hour growth rate and so if the second derivative grows positive we start growing at a 15-mile-per-hour right. apple at nine times earnings, right, is creating at less a multiple than microsoft. so the market is basically saying, apple is microsoft. apple in the next ten years, microsoft ten years ago, never innovate again. >> and that's the question. >> and i simply don't -- >> so -- then default.

everyone likes to predict the next apple product. they're going to make a watch, they're going to make a tv, a small iphone, a big iphone. but apple has a very consistent track record of innovating and entering markets -- >> does it matter if they get cash back? how important is that in the overall scheme of things? >> yeah i know i mean -- i think the discussion is accurate, right? and i think that the green light is correct. this is both a growth company, and a company with too much cash. and so i think there's definitely an opportunity here. and so you heard this for yeas s he they were still growing fast. they've finally given a dividend. i think people want more. i think that we will see them give more. meanwhile at google which is also slowing their earnings is trading at 17.5 times. still growing very nicely. don't get me wrong, it's a great company. but they're spending on everything and only making money on one product. so i think that that disparity and valuation -- comes down.

>> we'll keep an eye on those stocks. i know you also like netflix and take two. hope to have you back. >> thank you. >> all right. when we come back, volatility has been the name of the game over the last couple of sessions. we're going to take a closer look at what to expect when the opening bell rings on wall street. and then pimco's bond king bill gross will join us with his latest economic outlook and much more. "squawk box" about be right back.

one more hour with our "squawk" newsmaker of the morning. >> fed policy is very easy. and it's going to stay easy for a long time. >> st. louis fed president jim bullard on europe, the markets, and the economic recovery. and earlier this week, bill gross called central bankers the masters of the universe. >> i have the power! the most powerful man in the universe. >> we'll give him a chance to ask jim bullard about the fed's exit strategy. >> the third hour of "squawk box" starts right now.

welcome back to "squawk box" here on krcht nbc, first in business worldwide. i'm joe kernen along with becky quick and andrew ross sorkin. our guest host st. louis fed president jim bullard. we have a lot more to talk about mr. bullard. but first becky has your morning headlines. >> oh, thank you. among our top stories this morning, boeing will be meeting with the federal aviation administration today. executives from the airplanemaker will lay out their plan to get the dreamliner back in the air. the company believes that the specific proposals will prevent the lithium-ion batteries from overheating. by the way, boeing ceo jim mcnerney told "the wall street journal" that he got general motors and general electric to lend boeing some of their top electrical experts for its investigation of the battery problems. pretty interesting story. kind of walks through how there is some real cooperation here trying to make sure they really figure out what's happening. also hewlett-packard today, the company posting first quarter earnings and revenue that topped

wall street estimates. the pcmaker's outlook better than the current consensus and ceo meg whitman says the company's turnaround plan is gaining traction although there is still work to do. we'll hear more from meg whitman at 9:00 a.m. on "squawk on the street." meantime, texas instruments is raising its quarterly dividend by a third to 28 cents a share. the chipmaker also announcing that it will buy back an additional $5 billion in stock. take a look at the markets right now. the equity futures are indicated higher this morning. we came in this morning and they were up by about 50 points. right now you can see the dow futures are up by about 82 points above fair value. gaining some ground throughout the morning. as we look back at the last few days of declines, based on the futures this morning they could wipe out those losses if things continue to pick up from here s&p futures higher as well. overnight and asia you saw a drop of about half a percent in the shanghai composite. nikkei up by 76 points and in europe this morning in the early trading there you'll see that right now the ftse is up by about 0.6% a big gainer is germany up 1% and france the cac up which about 1.87% joe i'll

punch back over to you. >> we've been talking to jim bullard all morning. dan greenhouse, btig chief global strategist also a cnbc contributor, and burt white, lpl's financial is chief investment officer. is that two dans? dan, do you -- yeah you're dan. did you hear me -- the fed president bullard has been saying, were you able to hear that? >> some of it, yes. >> where are you in relation to his gdp numbers? how accurate do you think the fed -- is it -- are they overly optimistic -- >> they are extremely accurate. >> if i was auditioning for a job, yes. no. listen since the recovery, the fed has been generally speaking overly optimistic about the path of gdp. and inflation. and a number of other numbers. you know, i don't know that jim is any better or worse than anyone else. he's a nicer guy than most of

the fed members i've met. no, i think generally speaking -- >> you just lost a lot of friends. >> yes, but i gained a very important one. so, it's a wash. >> no but they've been overly optimistic since the beginning and i don't see any reason why at least right now they're not going to be the same. >> it was really interesting. yesterday jim was talking about raising interest rates as soon as the summer of next year and i don't know that that's going to be able -- >> i did say that but that's based on my forecast which is more optimistic as the committee as a whole. so all i'm doing is plugging numbers into standard formulas, and so my forecast says sooner but others are would have that pushed back. obviously talking 2016. >> the right forecast for 2013 is that you can get 3% growth in the u.s. economy. i know we said that in 2011 and 2012. those were years bitten by the

european sovereign debt crisis that sent europe back into recession but 2013 i think is no reason there can't be a better year. 3% is not a huge growth rate for the u.s. economy. >> no. except now we get to introduce the volatility and the uncertainty related to the sequester. as we were talking about off camera with becky, macro economic advisers who seem to be the barometer for this right now have it hitting gdp like 0.6%. if you're optimistic for the full year you've got to cut that on your forecast. while that may not be the same as a european inspired decline it's enough to push the fed further off the future isn't it not? >> it's certainly a drag. but i think it will be probably a smaller drag than macro advisers, they tend to overstate in my view. >> burt you're listening. where do you come down on this? >> i agree with this. i think 2.5% is about right. you know, the consumer is chugging along here okay. business spending is accelerating and that's certainly really good news. the real danger here for me is europe.

you know, the bad news out of spain with the budget deficit. you know, i don't know who's taking these german competence surveys, but clearly sentiment is very different than data, and we think that the underlying data is top and there's no amount of confidence you can have in germany that's going to hire 20% of the unemployed in spain and italy. we think that that's still tops. but here in the united states, i think it's good enough to chug along at 2.5% to 3% growth rate. >> that's -- we've had like one quarter of that, right? and that's pretty optimistic. why -- that would be a change in what we've seen. >> yeah, no doubt about it. but i think the real crux here is a few things. number one is housing recovery is for real. there's no doubt about it. we think that's going to continue. if you're starting to see a lot of -- a lot of rope there. i think next week is home price week. we're going to get a lot of those data next week, and you're going to see home prices are up. you're going to see home builders continue to be hiring people and buying.

that's going to be a huge catalyst for this market. and then remember the fourth quarter. inventories were extremely low. that was a really big surprise. lot does that tell you? the shelves are not stocked. at some point in time there's not enough medium sized sweaters on the shelves we're going to have to restock those, i think that's going to be very good for manufacturing here in the first quarter. they can mix that together at 2.5% gdp growth rate. makes a lot of sense. >> let's say all these tight-fisted ceos see this, 2.5% to 3%. let's say it's true. do they say, okay, here we go, i'm going to loosen -- i'm going to hire. i'm going to invest in capital? we're going back to 3%? >> yeah, i mean the question -- >> will that happen? >> it very well might. i mean i'm not necessarily enthused or completely convinced it's going to happen. what you are seeing now in the context of my conversations with clients is there's a lot of debate about whether or not the spike in m&a has something to do with the fact that, okay things look like they're getting better over the six, nine, 12, 18

months, maybe with interest rates as low as they're ever going to be perhaps now is the time to start merging, cutting costs and setting up for what will be a nike swoosh-style kickoff in 2014, 2015, 2016. >> i look to you for this. spike in m&a? i don't count office depot and office max. right? and then buffett seems to be his own guy. i mean -- >> buffett -- >> he's got money. >> dell is unique. >> so it's-is there a spike in m&a? >> there's -- i think there's a real trend for more m&a. i just think that the sort of three or four deals that we keep looking to to suggest that there's a trend may be the wrong ones. >> that may be. >> you know, cheap money plus relative stability in the u.s. sounds like a recipe for m&a. >> right. but by the way, wasn't that the case last year? >> no, i think there's a lot more global uncertainty last year. confidence is certainly higher. >> well, clearly. >> the cash issue -- a year ago? >> yes. >> people have been arguing we're going to have a

renaissance in m&a for the last two or three years. >> how did kicking the can down the road in europe suddenly work? i mean it's like you're completely -- >> everything's fine. >> burt has it right that europe is still remains a big risk. but, you know, what are you going to say about the ecb's policy? that has been successful up to now, and it looks like -- >> that works? >> that is going to hold at least for the time being, and he's right, things aren't really getting better in europe, in the sense that these countries are muddling through. there's not a lot of growth and not a lot of growth prospects, but they probably aren't getting worse either. and so it's stabilized a lot compared to where we were say last june or july when i went to europe, and it was, i thought, a very -- the policy discussions were very chaotic. i wasn't sure what was going to happen at that point. so that thing has tommed down a lot. as far as i can tell, the calm factor is going to hold on

through the spring and maybe through the summer. >> and if i could just add real quick about andrew saying what's different in 2013 than 2012 let's say, this is something that dick fisher from dallas has been talking about at least in my opinion when we said interest rates will be low between years effectively told everybody don't worry about hiring, don't worry about investing, merging, interest rates will be exactly the same for the next two years. >> we're not looking at the calendar anymore. >> we quit doing that. >> he said don't worry about it interest rates will be low forever. what's different in 2013 if you believe the fed is closer to ending, you are by definition one year closer -- >> bring up fish. >> if you -- >> i've -- >> well -- >> because i like him. i like you. i do. >> i like you, too. i've been trying for years to get them to like me. >> you only hurt the ones you love.

you've heard that song. burt now i'm worried that -- i mean we have crashed kicking the can down the road for so long, as a bad -- and now we're saying and the masters of this that are the euros, and so that's what they did and it just worked beautifully. so now everybody's going to do this forever because it works and we're never going to solve anything. that's bad precedent, burt. >> no, i agree with that. you know, the good news about it is what we have kind of kicked out of the way is that the euro probably will continue. the question is, will the euro -- european union ever get out of recession. that's the new concern. but kicking the can down the road no doubt about it, and i do think that the groundhog not seeing his shadow just means that we're that much closer to that spring slide potentially for this inspired by europe. we've got to watch this very carefully. this kicking the can down the road has really been the policy that europe has taken and not taken the very tough actions that need to be taken to change

things around. everyone's concerned about austerity. we have not seen austerity yet and he that happens that will be binding in europe. we'll have a real big drag on global gdp. >> i mean our fiscal -- do you remember how much hike we -- how long do we fix that for? three months? >> i will say one thing, stagnation in europe sets up the u.s. to be a good place to good place to go so you can be a winner in a global game. >> all right. >> and very quickly i would add in response to burt's point, if you were a liberal you would say we already have austerity. we've cut 2.4 trillion after of growth rates and this is the whole idea behind what obama would say. if we could get 1.5 trillion more we'd stabilize the debt. i would not but there's a lot of people who would. >> all right. if you were a liberal which you're not as you sort of that's where you are -- >> i wouldn't advance that argument. >> but you just did advance the argument. >> okay. >> in sort of a way that allows you to escape -- >> no -- >> kind of libertarian --

>> in comparison to two years ago projected growth rates are lower -- >> libertarian starts with -- >> yeah. that scenario. >> very close. >> thank you. >> all right. and dan thank you. >> coming up we're going to have much more from our guest host, st. louis fed president jim bullard and we're going to talk to bill gross about the markets and next week's sequester when automatic spending cuts kick in as we head to a break. check out the "squawk box" market indicator. [ lorenzo ] i'm lorenzo. i work for 47 different companies. well, technically i work for one. that company, the united states postal service® works for thousands of home businesses. because at usps.com® you can pay, print and have your packages picked up for free. i can even drop off free boxes. i wear a lot of hats. well, technically i wear one. the u.s. postal service®, no business too small. i know what you're thinking...

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[ male announcer ] with citibank's popmoney, dan can easily send money by email right from his citibank account. nice job ben. [ male announcer ] next up, the gutters. citibank popmoney. easier banking. standard at citibank. ♪ chicago, chicago >> in the midwest today where snow has been falling. you can see right now, dow futures are up by about 86 points. s&p futures up by more than nine. continue to see where we head as we get towards the opening bell in the last trading day of the week. >> more from jim bullard. president of the st. louis fed. i wanted to get back to one thing that we talked about, very beginning of the show, we were talking about the fed board meeting has sort of realty show to it. >> the microphone is on.

>> how often do you see the market react to your minutes and say they got it right? and how often, oh, my god, they totally don't understand what's actually happening. >> no, i think we work pretty hard on the minutes to give an accurate reflection -- >> do you get to look over the minutes? >> yeah the minutes are approved by the committee. so -- >> and how often do they get changed? >> there are changes. they do get, you know, they're wordsmiths, definitely. to try to -- >> -- accurate of what was happening in the room? >> no, no, toy are. i think they're a very fair characterization and the chairman works hard and the staff works very hard to make them a very fair characterization, as far as they can get. the discussion in the room. and i've, you know, and i appreciate the work. that's not an easy thing to do. a lot is said and they're trying to summarize and i think they do a good job. if markets react one way or the other, that's what was said at

the meeting. >> do people push to whitewash the minutes? meaning is there ever something that's said in the minutes? >> no, it is-it is an honest attempt to make the best summary that you can make of the discussion in the room. and i thinkth a very fair assessment of what was said. >> you saw the minutes, by the way, from 2007, the real minutes, when you get to see what really went on. and i wanted to ask you about this issue about tim the guy their. you may know what i'm referring to. but there was a controversy -- >> well, just to be clear, i wasn't on -- >> i know, i know. i appreciate that. but, when you see the minutes, and you saw the change, you know what i'm referring to, there was this exchange about whether tim geithner had been effectively tell being people in advance that bank of america what was happening and you saw the board members almost try to catch each other on -- on what was happening. how often -- and is that -- to me when i actually read those minutes, that actually seemed contentious. i mean, actually like there were people trying to make a point.

how often is that actually happen in the room? and you don't see it in these minutes but you see it five years later? >> well, people often try to make a point. you mean, other than a point on the economy or a stand -- >> yeah, there's like other things going on? >> well, it's a big group. you know, there are be, you know, contentious exchanges between members. you can read the minutes all the way into the past, and see when that's occurred. and you know, that can happen. >> separate issue, last week i don't know if you saw, elizabeth warren, she testified but there was a hearing in which she had all of -- many of the regulators testifying, and she grilled them. she, she did not make them look very good but she made an argument that the banks are still too big to fail, and in one case suggested they were too big to jail. and i know it's not your role but if you think about the fed as a regulator, do you think the fed is doing the right thing? do you think there's -- still needs to be a shift in terms of

what's going on, how banks are doing? >> i've said on the show before i think we still have a too big to fail problem and i would favor smaller institutions, as the most gshs >> has that argument -- as the economy's gotten better has that argument fallen -- >> i don't think so. i think it's gaining steam and i think as the debate kicks off more here we might see, you know, actual proposals on the table about how you could go about getting smaller institutions. we don't need large institutions that are implicitly subsidized by the taxpayer. and you know, we can do -- we can do fine with a smaller set of institutions. i think we'd be more innovative and we'd be more comfortable. we'd be willing to let those institutions fail if they made some kind of goofy trade or something. >> if somebody let jamie diamond, he would argue to you look at other countries where the banking system is more concentrated. look at canada. look to australia. look to other places on a relative basis u.s. banks are

actually not that concentrated. would you buy that argument? >> yeah, i -- it's the question is government subsidization or implicit subsidization of the largest banks and i think right now they're still receiving that subsidy and i think you'd want to -- it's because we feel uncomfortable still, i think, as a country, if they got into trouble, just saying, oh, we're going to let -- we're going to let really big institution go down. so, you want to get them to a size where you feel comfortable saying, okay, well, you, you made some -- you have some problems here. we're going to let you fail. and we're not to that point yet, i don't think. >> jim, you're not the only fed member who's speaking this morning. i'm looking at some wire flashes that the san francisco president john williams is speaking as well. he's talking a little bit about some things. one of the headlines that popped up is that the fed wants some ambiguity over its desired job outlook. what does that mean? does that mean moving away from 6.5%? i don't understand the headline. having spoken with him do you know what that means.

>> i know john well but you better ask him. >> is that a discussion that came up in the -- >> i'm not sure what the meaning is behind that. >> we're going to have gross on and i'm trying to figure out what -- i understand what he means because you would think given the -- the global accommodative beggar thy neighbor almost policies -- not disparaging that, but that -- you would think that the -- if the -- >> vigilantes. >> he likes to make fun of me. >> if the vigilantes -- are they gone, are they missing -- where are they? shouldn't they be here? did they all die? what happened to them? is it not a time to be worried? >> for me and my monetarist friends and everyone that's worried about inflation you just have to realize that inflation right now, and i'm sure from a year ago is about 1.4%. so it has not materialized so far.

that does not mean it will never materialize. i think the fred has -- because of this. inflation is lower than our target. we should defend our inflation target from the low side i think that's a reasonable thing to do. we've got this all-out policy going -- >> if you were prone to worry bz a vigilante about the size of what the government owes and what would happen if interest rates did go up to our ability to pay the interest on all of our obligations right now you would be really -- you would be really worried, this would be a great time to be a bond vigilante and it doesn't it seems to be very quiet and i don't know why. >> i understood bond vigilante to maybe have two meanings. and you're taking the second one. the first one is to watch out for inflation. i cited low inflation numbers and pretty low inflation expectations as well. but another side would be moving fiscal crisis where are the bond vigilantes on that. i think what the market is saying that could happen but we're not close enough that they're willing to take a bet

that there's actually going to be a crisis -- >> the size of -- >> gold -- >> what the pow irof the fed, and the size of your balance sheet you can crush ving ran if is. it's like they're -- you can say it's not time for you right now because if you take that trade we'll crush you. >> i wanted to talk -- we've still got to talk -- we'll do that -- >> 40 -- >> a little bit. coming up we will head to the aforementioned bill gross on fed's exit strategy earlier this week. he tweeted that the central bankers are masters of the universe and asked if they're vigilantes. one of those right on set. we're going to let jim bullard and bill gross talk about it at 8:30. mmitment to the gulf. mmitment to the gulf. and every day since, we've worked hard to keep it. today, the beaches and gulf are open for everyone to enjoy. we've shared what we've learned, so we can all produce energy more safely. bp's also committed to america. we support nearly two-hundred-fifty thousand jobs

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welcome back to "squawk," everybody. among the stories we're following, some new freedom in north korea. but only for foreigners. the country now says it will soon allow visitors to tweet, skype and surf the internet from smartphones, tablets and other mobile devices. north koreans will be allowed to use certain mobile services like text messages and video calls but will not have access to the global internet. when we come back from uncertainty about the fed's exit strategy to next week's automatic spending cuts investors taking a break from the rally that kicked off 2013 until this morning. yeah, got to watch the futures today to see what's really going on. up next we're going to talk it over with the "squawk" market

master. pimco's bill gross will be our special guest. right now as we head to a break, that's right dow futures up 93 points at this level. that's going to wipe out the losses from the last couple of days. we'll be right back. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. [ male announcer ] from the way the bristles move to the way they clean, once you try an oral-b deep sweep power brush, you'll never go back to a regular manual brush. its three cleaning zones with dynamic power bristles reach between teeth with more brush movements to remove up to 100% more plaque than a regular manual brush.

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welcome back to "squawk box." let's take a look at some stocks to watch in today's trading. hp is probably the biggest one to pay attention to. it reported better than expected earnings and revenue for its fiscal first quarter although the company continued to see weaker sales in its core pc business. hp also provided upbeat sales guidance for the current quarter. we're going to hear more about all of that from meg whitman who is going to be on at 9:00 a.m. on "squawk on the street" with our own david faber. also, web m.d. health posting a fourth quarter loss on the revenue and guidance higher than the street expected. shares climbed sharply in after-hours trading. the company was hurt, however, by restructuring charges and declining ad sales. we're going to be watching shares of nordstrom. the high end department store operator posting a 40% rise in fourth quarter earnings, but its full-year outlook was

disappointing and shares were down in after-hours trading. so keep an eye on that one. then also making headlines today, story that joe really loves. president obama, holding a white house open data day hack-a-thon. today. joe had a different view of what a hack-a-thon was in the white house. but we'll bring -- >> bringing back gibbs and axelrod, and -- >> colleagues of yours. >> colleagues of yours. okay. we're going to continue on. the administration is inviting developers and tech experts to come share some ideas, hack-a-thons are common in the tech industry with the goal to figuring out creative solutions to problems you may remember facebook engineers celebrated their ipo by having a hack-a-thon. don't worry, jim. >> you got to love the name hack-a-thon, don't you? >> the fed minutes spooked investors on thursday. and our next guest took to twitter to offer his thoughts. joining us right now is bill gross. he is the co-cio founder and

managing director at pimco and bill it's great to see you this morning thanks for getting up early with us. >> thank you, becky. i'm wide awake. >> we have been talking about your tweet all morning long. talked a little bit earlier just for anybody who didn't see it. you tweeted that bond vigilantes are no more. central bankers are the masters of the universe, but are they vigilant? we happen to have one of those masters of the universe here with us today. st. louis fed president bullard is here joining us today, and i'm hoping you can tell us a little bit about what that tweet meant. >> well, welcome, jim, and you know i look forward to some discussion on all of this. you know, it meant the following, becky, that one, the old role of private investors as bond vigilantes probably has taken a second seat, maybe a third seat. doesn't mean that we're not vigilant, that we don't care where bond prices go and interest rates go but it does mean that the fed and other central banks probably are in the driver's seat, as well as,

you know, reserve currency countries such as china and japan that own a trillion dollars worth of treasuries each. so pimco, you know, blackrock, western asset, we're down the list. >> so, is this a new development? because i kind of get the feeling that's been the case for a couple of years now, at least. >> oh, i think so. you know, and certainly with the advent of quantitative easing over the past few years in which the fed is now buying a trillion dollars worth of securities a year, you know, you'd have to think that, you know, they're absorbing most of what the treasury offers, and so you know, we depend upon them to be vigilant and we can talk about particular term here in a second. but, you know, the central bank's basically are in charge here. >> jim, are the masters of the universe vigilant? >> i don't think we're masters of the universe. place where i'm from, st. louis fed, has always been outspoken on inflation and trying to keep

inflation low and stable. and in a way we've succeeded during this crisis period that inflation has been low and stable. when i think about vigilantes i think of, you know, markets putting some discipline on the federal reserve. but the truth is over this whole period is we have not seen that much inflation. you know, pc inflation measured from a year ago, even headline 1.4% is pretty low. >> have you been surprised by that? >> i have been surprised by that. i would have predicted that it would be somewhat higher and closer to target or even a bit above target. so it has been a surprise. >> bill it sounds like what you're saying is that the fed is so powerful and holds all the cards so that there are vigilantes out there, because they're being silenced because they could be crushed so easily. and it could be that there's just no reason, really, to be that vigilant at this point, based on, you know, on the set of circumstances we find ourselves in. >> well, you know, i think it's important, joe, to ask what

vigilant means. jim defined it, and correctly so in terms of inflation and perhaps the goals for employment going forward. but i think, from our standpoint, that vigilance, and when i asked are they vigilant, you know i think it's critical that they should be vigilant as the negative aspects, for instance the zero based policies in quantitative easing, and they should be vigilant in terms of what other central banks are doing as well in terms of check writing and currency volatility that that generates and asset price inflation potential that jeremy stein addressed a few weeks ago. so there's a lot of vigilance to be vigilant about. >> but then we had someone yesterday say that this is the asset -- you call it a begun, but the rise in credit market assets is what they were trying to do in the first place. mission accomplished. not an adverse effect of what they were trying 20 do. >> i think that's true. you know, long ago the chairman asked in 1996, when we talked about this earlier, you know,

how do we know, when do we know when asset prices are too exuberant. you know, i think that's a difficult task. i think one of the problems that the fed has had over the past ten years is that they have not focused on asset prices. that they focused almost to the asset price exclusion of inflation and employment, and missed obviously in 2006 and '05 and ultimately in 2007 and '08 the asset bubble and destruction that asset prices can wreak upon an economy in addition to higher inflation. >> you know, we've been talking a lot about this so-called m&a boom that seems to be happening in part fueled and funded by debt, potentially. your views? >> well, we think it's negative for bonds to the extent that you know a company such as heinz can lever up and destroy value in a bond market. you know in terms of the great rotation in that's what you speak to, andrew, we don't see

much of that honestly. we see as many clients coming in to bonds, as coming in to stocks, and it's basically been a rotation out of money market funds into both bonds and stocks. but, yeah, ultimately, if private equity investors and others lever up, into, you know, an h.j. heinz, and other types of vehicles, then it's a mild bond market negative because it assumes higher leverage and more risk. >> did you want to respond when he said you guised missed it in '05 and '06? >> bill said that we should pay attention to lots of things other than just inflation when we're making our policy, and that i think the fed certainly does that, and one of the bhigest aspects and one of the biggest puzzles in central banking over the last 20 or 25 years has been bubbles and what to do about them. you know, we've had two decades and two bubbles. you had the tech bubble in the

nineties, which ended in relatively benign way. maybe gave us some confidence when the housing bubble came along. that ended in a very tragic way. so, you know, how to play this going forward, i think, is a very live issue. but it's been a debate that's been going on for a long time inside the fed. and you know, i think it's just going to -- we were just going to have to track it. i will say this, i think our system's in place on tracking what's going on, making sure that we're at least aware of different aspects of financial markets, and financial market excess that might be going on. those systems are a lot better than they were five years ago, and so we are trying to have better market intelligence on this kind of stuff. but the question about what to do about it, i think, is still a very live issue for us and for all central banks. >> bill, you know, you hear about those toggles and ticks and all this stuff overheating again on a scale of one to ten are we anywhere near where it was the froth that prior to the

financial crisis with those types of instruments that no money down anything that seems to be way out on the curve as where are we? >> not really we're not at a nine or a ten, perhaps not even an eight, you know, i'd probably label it as a six if only as a reflection of credit spreads. which aren't at historically narrow levels and that means high yield bonds are always historically high prices on a relative basis. you know there is a flavor of speculation in the high yield market, and the credit markets, and the esoteric, you know, shadow system that you speak to. it's not of a significant nature at the moment but like i suggest in terms of jeremy stein's paper, i've written an investment outlook that's coming out next week which addresses this. of course, we're moving along that scale, but there's no reason for significant concern at the moment. the biggest concern to address jim's point in terms of asset bubbles is simply that the leverage that an economy assumes

as we move along and as we mature, it doesn't matter whether a house doubles in price if there's not a mortgage on it. that's all pure equity. but to the extent that it's levered and a second mortgage is taken out against the rise, then it's the leverage in combination with the asset price increase that produces the damage going forward. >> bill we've talked about the market reactions to the fomc minutes this week. the dow is down about 154 points over the last couple of days based largely on what people saw in the fomc minutes. the implication being that people looked at this as a new message, the idea that there is, just the idea that the punch bowl could be taken away sooner than some people expected maybe even before the end of this year. did you change your views about what the fed's going to be doing this year based on what you saw in the minutes? >> no we didn't, becky. we still think the end of 2013 and then we'll take a look. i think the fed perhaps is in the same position, although there's substantial disagreement.

that's what the minutes rethreated. you know the minutes have basically said that many participants, there are many participants were concerned about the negative aspects of quantitative easing. jim has mentioned in speeches, and prance earlier today, what some of those negative aspects are. you know, they have to do with the balance sheet of the fed, the potential for losses going forward, the accumulation of a large amount of treasuries, relative to the private market, et cetera, et cetera. and so you know, there are negative aspects to all of this, but many participants are beginning to see. we question from your side, jim knows more, we question from our side whether those many participants are, you know, less than the what we call the three musket rooers. you know, as chairman bernanke, janet yellen, and bill dudley we think that they dominate the discussion, but, you know, certainly many participants are becoming concerned and we should watch that going forward. >> the markets are forward looking. you're still saying end of the year and then we'll see.

but when would the market at least the bond market are we talking june before they start to worry how far down the road does the bond market generally look and where do you think it will be this time? >> well the market does look ahead becky. the market for instance of long-term bonds has gone down in price by 15% since june of last year, in anticipation of higher inflation, and the potential inflationary effects of the existing quantitative easing. so markets look ahead. if the market were to anticipate a reduction in the qe program, and let's face it, at some point, a trillion dollars worth of purchases has got to be reduced going forward, but if the market anticipates that, then yes, you're going to see reactions like the last two days in terms of risk assets, and you're going to see reactions in terms of treasuries, as well. >> but you got -- sorry. >> is the market pricing that in as january of 2014 right now? what's -- what is the market telling us? >> i think that's the mean estimate.

pimco always hates to be at the mean or the average estimate but i think if they took survey that's exactly what the market would anticipate, you know, that's sort of a full year's program in terms of the trillion and there's the expectation based upon employment and based upon inflation and based upon as jim has mentioned the limitations of the fed's balance sheet that you know, at that point, the fed would probably take a look-see and either scale back or you know begin to eliminate it entirely but it will be growth dependent. >> this is just still way too friendly for me. let me try this one more time, bill. when you say -- >> all right. >> there was a question, are they vigilant? and i see the question. were you implying that they were not vigilant? and has jim convinced you today that he is vigilant? >> well, he has in terms of inflation. and he has in terms of employment. we know -- >> so polite. >> i know -- what were you saying? that looked to me like you were

throwing down, bill, and there's no more vigilantes, all we've got are these masters of the universe and they're not vigilant. is that -- >> okay you want to get me into the ring. i thought i was there five minutes ago. but i don't think the fed is vigilant in terms of the negative aspect of zero down interest rates i don't think they're vigilant in terms of other central banks and their quantitative easing policies, and i don't think they're vigilant in terms of asset prices. yes. >> there you go. >> okay, bullard. >> in the ring. >> no i think we are. we take all those -- all those aspects into interest certainly international policy coordination is you know, i wouldn't say coordination but it's certainly we talked all the other central banks we're well aware of what they're doing. the -- and the -- i've already talked about the assets, asset bubble side -- >> come on, upper cut. >> but i'll say one thing some of the discussion here, starts to focus on dates about ending

the qe program, you should not be thinking that way. you should be thinking about how is the u.s. economy going to perform, and then how is that going to allow the fed to taper off the program? and i think the idea of tapering the program at some point in the future maybe meaning steam on the committee. i don't know. that's something i've advocated for a long time that the committee should react to incoming information. substantial improvement in labor market conditions does not happen overnight. this is something that comes gradually, the committee should acknowledge gradual improvement when we see it or when we think we see it and then gradually taper back the program and then on the day when it ends it's not such a big day, it's just -- it's just like continuous thing where you go from a small amount of purchases down to zero and i think that that would make a lot of sense about how to run this going forward, and you get rid of a lot of this guessing about well where's the committee, where's the committee really think about this where's the committee's judgment on the

behavior of labor markets and on the economy more generally? >> i hope that was okay, bill. i'm glad that -- i think now -- we're all just getting along now. we're going -- >> we're going to go to the kumbayah segment here. >> right -- >> gary springer -- >> we got it all out -- >> no chair throwing here -- >> we got it all out and i think we cleared the air and i think everybody feels better. >> bill, i apologize -- >> let me put it this way, joe, we're good listeners at pimco so when jim speaks we listen. >> awesome. great. >> bill i just want to apologize i think we accidentally called yous bong king earlier 3w6789d o-n-g. >> sorry. >> that was years ago. >> that's joe. >> i resemble that. i resemble that. i'm going to see you for definition of character. >> bill gross the bond king. we appreciate it bill. >> i did go to colorado. >> thank you. >> coming up, much more from our

guest host st. louis fed president jim bullard. and don't miss "squawk box" on monday. we're going to talk to at&t chairman and ceo randall stephenson. he's going to join us live from the world mobile tech conference in barcelona. coming up, walmart wasn't alone seeing problems in february. another consumer company is warning. we've got details after the break. i'm only in my 60's...

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welcome back to "squawk box." futures right now, you know, andrew, maybe it didn't mean anything d it, the feds. you were right. >> thank you. >> you're welcome. said nothing has changed. as we get over a hundred, we'll basically be back where we started. >> check out the shares. a whole week of craziness. check out the shares of darden, the restaurant, not the prosecutor. the stock coming back now, though it fell initially on guidance. the restaurant chain announcing below the current street estimate of $1.12. weaker than expected among the reasons cited, pointing to macro economic headwinds during the last month of the quarter.

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welcome back to "squawk box." let's get down to the new york stock exchange. jim cramer joins us now. i think we're going to -- what was that? was that broadcast news? william hurt. you don't care whether i think we're going to be okay. but i think we're going to be okay in terms of the feds. >> basically saying it's not the end of the world. i love when he said, look, 60% worry, nowhere near the end of

this. not that much froth. there's a lot of talk about froth. i felt so much better after these gentlemen were speaking to us. >> when gross says we're at a five or six on the payment in kind and toggles and all that kind of stuff, six sound about where we want to be with how frozen everything was? >> i thought that was perfect. that's the happy medium. if it's one, two, it means bernanke's not working. if it's nine, ten, bernanke's got to stop working. >> to give you props, jim, you were there before you heard these guys talking about it. you decided independently this was okay. >> thank you, becky. look, i just think that there's so much negativity and so many people who say, wait a second, now germany is bad, even though the numbers are good. italy, the election. i mean, the italian election as important as some people think it may be, is not the make-or-break whether we'll have good retail sales. >> the next election in italy is more important, i think. the infallible guy.

>> look, yes. yes. you are absolutely right about that. >> all right. thanks, jim. >> absolutely right. >> we'll see you in a couple of minutes. coming up, the last word from jim bollard. we're coming back right after this. this is america.

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